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Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Before: SHRI. B.R BASKARAN & SMT. BEENA PILLAI
Date of Hearing : 15-02-2021 Date of Pronouncement : 30-03-2021 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal has been filed by revenue against order dated 29/03/2018 passed by the Ld.CIT(A), Gulbarga for assessment year 2009-10 on following grounds of appeal: “1. The order of the learned Commissioner of Income-tax (Appeals) is opposed to law and facts of the case.
2. The assessee is one of the Share Holders holding more than 10% Shares in the Company MIs. Noble Distilleries a Powers Ltd., (NDPL), being a domestic company in which the public are not substantially interested. The Company has made payments to the assesste and has also received in return the said payments, which clearly amounts to advance/loan - This fact has been accepted by the Ld. CT(A) in his order. But, the CIT(A) has erred in declining that such payments does not amount to deemed dividends.
The Ld. CIT(A) ought to have appreciated the interpretation of the provisions of section 2(22)(e) of the Act before deciding the appeal in favour of the assessee by holding that "the AO has not brought anything on record to say that the current account is not in the commercial expediency of the business of the company. The AO also failed to prove that the current account was for the benefit of the appellant only". The Ld. CIT(A) failed to appreciate that as per provisions of Section 2(22)(e) any payment by way of advance or loan amounts to deemed dividend and it is for the assessee to establish the commercial expediency thereof at the first instance and it is not for the AO to prove the contrary in the absence of any evidence placed on record by the assessee in this regard.
4. The Ld. CIT(A) failed to appreciate that there is no interest charged by NDPL on the advances given to the assessee nor vice-versa, which fact would go to show that there is no commercial expediency in advancing the amounts to the assessee. 5. Any other grounds raised
during the course of hearing.” Brief facts of the case are as under:
2. The assessee is engaged in the business of retail sale of Indian made foreign liquor and is also a partner in various partnership firms and managing director of M/s Noble Distilleries and Power Ltd. is a domestic company having its registered office in Bellary. The assessee filed its return of income for year under consideration on 30/09/2008 declaring total income of Rs.19,12,134/-. The return of income was processed under section 143 (1) of the Act and was selected for scrutiny. While passing the assessment order under section 143 (3) on 20/12/2011 is following additions were made: deemed dividend under section 2 (22) (e) - Rs.3,51,42,058/- disallowance under section 14 A r.w.r 8D - Rs. 2,84,160/-.
3. Aggrieved by the additions made, assessee preferred appeal before the Ld.CIT(A) who dismissed the appeal of assessee vide order dated 28/03/2013 for nonappearance. Thereafter assessee preferred appeal before this Tribunal and this Tribunal without going into the facts of the case remanded the issue in the appeal to the file of the Ld. AO with a direction to afford the assessee adequate opportunity of being heard and to examine details filed by assessee is before the tribunal and also during the course of hearing to finalise accordingly.
As a consequence to the direction by the tribunal, the case was taken up for examination/hearing and notice under section 142 (1) was issued to assessee. The Ld.AO also analysed the details filed by assessee before the tribunal and the assessment order under section 143 (3) read with 254 of the Act was passed on 31/03/2016 determining total income at Rs.2,27,25,060/-. The Ld.AO made addition of Rs.2,08,12,937/- as deemed dividend under section 2(22)(e) of the Act.
Aggrieved by the order of Ld.AO, assessee preferred appeal before the Ld.CIT(A). The Ld.CIT(A) observed as under: “(i). The transactions between the assessee individual and the company, M/s. NDPL, are two-way transactions in a current account, involving both receipts and payments made for operational convenience by way of flow of funds and therefore. could not be characterised as distribution of accumulated profits. (ii) In an open & current account, there would be two-way transactions between the company and the shareholder. These payments in the nature of debit & credit entries in the current account would constitute an account maintained in the course of business applying the ratio of the Hon'ble High Court of Calcutta in the case of Daga and Company P Ltd, 227 ITR 480. (iii) Applying the ratio of another decision of the Hon'ble High Court of Calcutta in the case of Pradeep Kumar Malhotra 338 ITR 538, the payments are not gratuitous loan or advance given by the company to its shareholder and therefore, the same cannot be termed as deemed dividend. (iv). Applying the ratio of the Hon'ble Tribunal, Kolkatta in the case of ITO vs. Gayatri Chakraborthy in the transactions
cannot be termed as deemed dividend u/s 2(22)(e) as the loan account is difference from current account.”
Aggrieved by the order of Ld.CIT(A) revenue is in appeal before us now.
The Ld.Sr.DR submitted that, there are payments from the company to assessee shareholder, however nothing has been brought on record to prove the repayment. He thus submitted that such transaction constitutes deemed dividend under the provisions of section 2(22)(e) of the Act. The Ld.Sr.DR submitted that assessee received advances of Rs.3,69,77,174/- as per the ledger account of assessee as appearing in the books of M/s Noble Distilleries which is more than the cumulative profits of the company (Rs.2,58,34,967/-) as per the balance sheet. It was also submitted that assessee holds 37% share in M/s.Noble Distilleries, and hence in entirety profit would amount to deemed dividend under the provisions of section 2 (22) (e) of the Act. 8. In support of this submission reliance is placed on following judgements: decision of Hon’ble Supreme Court in case of Ms.P.Sarada vs CIT reported in (1998) 96 Taxmann 11 decision of Hon’ble Supreme Court in case of Smt. Tarulata Shyam vs CIT reported in (1977) 108 ITR 345
On the contrary, the Ld.AR placed reliance on the order passed by Ld.CIT(A). He submitted that, this is the 2nd round of proceedings. He submitted that transaction between assessee and Noble Distilleries is of a running current account, which forms part of the record. He submitted that this is only for operational convenience of the business. He placed reliance on decision of Hon’ble Kolkata Tribunal in case of ITO vs Smt. Gayathri Chakraborty reported in (2017) 83 Taxmann.com 263.
We have perused submissions advanced by both sides in light of records placed before us. 11. We have perused the Ledger account of assessee in the books of Noble distilleries, placed in the paper book at page 55- 58 of paper book. Admittedly assessee has received a sum approx. to Rs.3.5 crores from M/s Noble Distilleries, for which no explanation has been offered other than submitting that it is a running account for the purposes of business activity. Ld. CIT (A) gave relief to assessee by observing that where a shareholder has an open and current account with the company, every debit entry made by the company in that account is not alone by the company to the shareholder’s. LdCIT(A) relied on decision of Hon’ble Calcutta High Court in case of Daga &Co. Pvt. Ltd., reported in 227 ITR 480 wherein it has held that, “To constitute a current or on account in the course of business, there must be each side creating an independent obligation on the other in the course of the business of the company.” Assessee also placed reliance on the decision of Hon’ble Calcutta Tribunal in case of Smt. Gayathri (supra). 12. We have perused the said decision and note that there is a categorical observation by the Tribunal that there were reciprocal deposits between the parties and the account was mutual.
We note that Ld.CIT(A) has not verified whether, there is a corresponding demand created in the name of M/s.Noble Distilleries in the books of assessee, in order to constitute the alleged Ledger account to be a running current account. The basic issues to be examined in the present case is whether debit balances in the accounts can be construed as ‘advance’ or ‘loan’ by these companies.
We are therefore of the opinion that the Ld.CIT(A) considered the issue without verifying proper records in accordance with law. There is no observation by Ld.CIT(A) of whatsoever nature in order to conclude that the transaction between assessee and Noble distilleries were a mutual current running account for the purposes of business as observed by the decisions relied by Ld.CIT(A) in his order.
We are therefore unable to accept the reasoning by Ld.CIT(A). However in the interest of Justice we remand this issue to Ld.CIT(A) in order to verify all these details by calling for the accounts of assessee and M/s.Noble Distilleries for the relevant period. 16. The Ld.CIT(A) is therefore directed to verify each debit entry on the aforestated loan and treat only the excess amount of the debit in the books of account of the company as deemed dividend u/s 2(22)(e) of the Act.
The Ld.CIT(A) is thus directed to consider this issue in accordance with law. Accordingly the grounds raised
by revenue stands allowed for statistical purposes. In the result appeal filed by revenue stands allowed for statistical purposes. Order pronounced in the open court on 30th March, 2021 Sd/- Sd/- (B.R BASKARAN) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 30th March, 2021. /Vms/ Copy to: